Thursday, April 15, 2021
 
Columnist
Martin Hennecke
 
CVM MINERALS
HKEx Stock Code : 00705 
 
Corporate Profile
The principal activities are the mining of dolomite and manufacture of magnesium ingots, and exploration of iron ore, coal and manganese.

Business Review - For the year ended December 31, 2012

The Perak Magnesium Smelter (the ¡§Smelter¡¨)

The financial year of 2012 was a difficult year for most businesses; almost every sector of the economy was struggling with the uncertainties surrounding the global economy. The nonferrous metals industry was also confronted with difficult challenges in its operating environment and faced downward trend pricing pressure during the financial year of 2012.

The Smelter had undergone hot and cold tests during the second half of 2011. These testing concluded in early 2012. However, the Smelter underwent further maintenance and improvement work (¡§new improvement works¡¨) for the financial year 2012 in order to improve future production and achieve higher quality grades in its output. Moreover, no dolomite was extracted from the dolomite hills due to the Smelter temporarily slowdown of production of magnesium ingots (2011: 201.83 metric tonnes (¡§MT¡¨) was produced).

The Mineral Water Bottling Plant in the PRC (¡§Bottling Plant¡¨)

In order to diversify and broaden the Group's earnings, the Company had indirectly invested in a company involved in the extraction and bottling of mineral water in the PRC. In this aspect, on 12 January 2012, an agreement (the ¡§Agreement¡¨) was entered into between the Company's wholly owned subsidiary, Nice Tone Enterprises Ltd. (¡§NTEL¡¨) and Voice Key Group Limited (¡§First Vendor¡¨), Chinacorp International Consultants Limited and Champion Tone Development Limited (collectively known as the ¡§Vendors¡¨), pursuant to which NTEL has conditionally agreed to purchase and the Vendors have conditionally agreed to sell 51% of the issued share capital of Victory Dragon Holdings Limited (¡§Victory Dragon¡¨) for a consideration of HK$200,000,000, which was satisfied by the payment of deposit in cash of HK$10,000,000 to the First Vendor upon signing the Agreement and by the issue of an aggregate of 660,000,000 ordinary shares of the Company to the Vendors and HK$106,840,000 of convertible bonds to the First Vendor.

The Company believes that this acquisition will be able to increase shareholders' wealth in the foreseeable future.

After the acquisition, the company redesigned the packaging of the brand of mineral water including the existing image of bottle and reposition to high end market segment. The new design gave customers a clear impression that the product is for a high-end customers. Moreover, the Company invested in a new production line and to further automate the bottling process in order to increase production capacity and also increase its sales volumes and reduce its unit cost substantially. These improvements for mineral water business had been completed in third quarter of 2012. During the improvement period, the sales of Victory Dragon in mineral bottled water business have been affected during the financial year of 2012. Victory Dragon managed to contribute to the Group's results approximately HK$145,458 in gross profit and turnover of approximately HK$2,148,220 since the date of the Company's acquisition.

Indonesian subsidiaries operations

The Group's subsidiaries in Indonesia which holds the various exploration mining permits for iron ore, coal and manganese are now operating at a much slower mode as the Group is trying to reallocate its limited cash resources.

The Board had announced on 19 October 2012 on the updated status of the Company's investment in PT Laksbang Mediatama (¡§PTLM¡¨) since completion of the acquisition in April 2011 (¡§Acquisition¡¨). As disclosed in the Circular dated 22 March 2011, PTLM is the holder of an exploration mining permit for the exploration of manganese in an area of 195 hectares at Jatimulyo Village, Girmulyo Subdistrict, Kulon Progo Regency, Daerah Istimewa Yogyakarta Province, Indonesia. The exploration process has commenced since the completion of Acquisition. Nevertheless, the exploration activities had slowed down because there were conflicts between the directors of PTLM and the legal representative of PTLM. According to the legal requirements in Indonesia, the legal representative of PTLM is responsible for daily operations of PTLM and the exploration activities.

In order to resolve such conflicts, the Company had decided that the members of the board of directors of PTLM shall be re-nominated and re-elected according to the relevant legal requirements in Indonesia. However, having made all reasonable enquiries, the Board found that the legal representative of PTLM could no longer be contactable. This caused the suspension in the daily operations of PTLM including its exploration project. In view thereof, the Company will replace the legal representative of PTLM to restart the daily operation and exploration activities of PTLM.

In light of the circumstances that the legal representative of PTLM is not contactable and the board of directors of PTLM will be re-nominated, the Company has decided to slow down all exploration activities of PTLM. At the same time, PTLM will remain in a state of readiness to restart exploration as soon as the issues have been resolved. The Company will actively monitor the status and will discuss with the relevant parties to resolve the issues. Further announcement(s) will be made by the Company on any significant progress as and when appropriate in compliance with the relevant Listing Rules.

Kindly refer to the Company's announcement dated 19 October 2012.

Financing of the Smelter

In order to finance the operations of the Smelter, CVMSB obtained banking facilities totalling approximately Malaysian Ringgit (¡§RM¡¨) 184.6 million (equivalent to approximately HK$450.5 million), which comprises a ten-years term loan from Bank Kerjasama Rakyat Malaysia Berhad (¡§Bank Rakyat¡¨).

As at 31 December 2012, the total utilised facilities amounted to approximately RM172.6 million (equivalent to approximately HK$437.6 million) (2011: approximately RM171.3 million (equivalent to approximately HK$420.0 million)).

On 25 July 2011, CVMSB has negotiated a re-scheduling of the loan repayment with Bank Rakyat. The monthly instalments have been revised to RM670,000 (equivalent to approximately HK$1.7 million) with effect from August 2011 to December 2013 and increasing to RM4.2 million (equivalent to approximately HK$10.7 million) from January 2014 to the end of the term of the loan in 2018.

Capital raising exercise

On 28 January 2011, the Company entered into a conditional warrant placing agreement with UOB Kay Hian (Hong Kong) Limited (¡§UOB Kay Hian¡¨) pursuant to which UOB Kay Hian agreed to place 163,900,000 warrants at the price of HK$0.005 per warrant.

Please refer to the Company's announcement dated 28 January 2011 for further details.

On 1 September 2011, the Company entered into a conditional warrant placing agreement with Cheong Lee Securities Limited (¡§Cheong Lee¡¨) pursuant to which Cheong Lee agreed to place 543,636,000 warrants at the price of HK$0.001 per warrant.

Please refer to the Company's announcement dated 2 September 2011 for further details.

The Company had announced on 1 August 2012 that the appointed placing agent, Cheong Lee had procured three placees, who and their ultimate beneficial owners are independent third parties of the Company, to subscribe for an aggregate of 835,000,000 ordinary shares of the Company at HK$0.05 each raising the net proceeds of approximately HK$40.55 million which will be used for the Group's general working capital.

Please refer to the Company's announcements dated 5 July 2012 and 1 August 2012 for further details.

Licences, approvals and permits

The Malaysian legal advisers of the Company have opined that CVMSB has obtained all major/material licences, approvals and permits in relation to the operation of the Smelter.

The PRC legal advisers of the Company have opined that Victory Dragon and its subsidiary have obtained all major/material licences, approvals and permits in relation to the operation of the Bottling Plant.

Business Outlook - For the year ended December 31, 2012

The Company is excited about the future of the Bottling Plant and its prospect in contributing higher sales and profit to the Group. The extraordinary economic development in the PRC in the past decade has made it the world's second largest economy and created higher disposable income to its citizen. In view of changing lifestyle, higher disposable income and increase awareness of health risks in the PRC municipal water supplies, the sale of bottled mineral water is expected to increase. The Group hopes to capture this growth in the bottled water market by becoming a brand which is recognised by the public in the PRC.

The Bottling Plant intends to have a comprehensive development of its mineral water resources with the aim of increasing its profit margin and create substantial long term growth.

The Bottling Plant had throughout the year carried out promotion and advertising through billboards, sponsorships and exhibitions to achieve the above plans.

In 2013, Victory Dragon will invest in new production line of sparkling water products and will place emphasis on expanding the premium sector of the natural minerals water in Guangdong province. Furthermore, the Company will also considers into expanding the mineral bottle water business in Hong Kong and South East Asia in the future.

The Smelter will intensify its production and marketing efforts for the next financial year to capture new demand from customers. However, in view of the current challenging economic environment and with stronger and more experienced competitors, the Smelter will continue to face pressure to lower its cost of production and to improve its gross margin. The Group also plans to improve its marketing network and to allocate more resources to human capital, internal controls and research and development which may yield higher profit in the future.

In the meantime, the Group is always on the look-out for new and profitable ventures for its long term growth plans.

Source: CVM Minerals (00705) Annual Results Announcement
Chairman Ji Kuang Issued Capital (shares) 1,340M
Par Value HKD 0.1 Market Capitalisation (HKD) 240M
 
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